151
3.8 Combined testing of different approaches
In the previous parts we reviewed several polit-economic approaches separately.
However, some of them can be combined (as especially the partisan politics approach, the opportunistic approach269 and the approach of divided government) and
tested simultaneously. What do we find if we test these approaches statistically
based on our data-set? We have tested variations of the following equation using
OLS:
RILE EL tt4t3t20 ????? ++++=? tT
With:
0? , x? Constant, coefficients ?Tt Fiscal effects of tax reforms (net fiscal effects, fiscal effects of increases, fiscal effects of reductions)
ELt Election year variable (dummy)
LEt Left-wing government (dummy)
RIt Right-wing government (dummy)
EL? Stochastic error term
To make tax reforms comparable over different years we have divided the fiscal
effects by nominal GDP. All employed polit-economic variables are dummies. Table
10 reports our results for the dependent variables “net fiscal effects of tax reforms”,
“fiscal effects of tax increases” and “fiscal effects of tax reductions”.270 We do not
find strong correlations. Most of the coefficients are not significant and we never
reach adjusted R2 scores higher than 0.27.271
In our results we find no indication for a partisan hypothesis. On the other hand
our analysis shows that the opportunistic approach, which includes the variable for
undivided government and the election dummy, performs best with respect to the
fiscal effects of tax burden increases. The coefficients for both variables are highly
significant at the 1% level and the adjusted R2 score is with 0.27 high compared to
other specifications. As expected by the theory of opportunistic government behavior, elections had a negative effect on the extent of tax increases before elections.
Governments postponed tax increases after the elections to improve their re-election
probabilities. Furthermore, our observation that undivided governments refrain from
269 Frey and Schneider (1978) have early pointed out that partisan and opportunistic approaches
can be combined. Parties have an ideology to which they adhere in general. But before elections they might nonetheless behave opportunistically.
270 The Durbin-Watson test statistics for our regression (reported in table 3) do not support the
hypothesis of serial autocorrelation in the error terms.
271 Partly this is affected by the fact that we are focusing here on data on fiscal effects of adopted
reforms as we would expect effects of partisan constellation and divided government on
adopted reforms. However, with respect to opportunistic behavior data on implemented reforms would be more suitable. See the discussion of opportunistic behavior in part V.3.5.
152
tax increases is shown in the statistical analysis as well: the coefficient for the influence of undivided government on tax increases has a negative sign.
The coefficients for divided government as well as for the electoral dummy equal
0.004. This indicates that elections and divided government push down the fiscal
effects of tax increases by 0.4% of GDP. This finding is in line with our descriptive
analysis of the data (see Figure 59 and Figure 67).
Notes: t-statistics of the estimated parameters in parantheses. * significant at the 10% level; ** significant at the 5% level; *** significant at the 1% level
Equation
Variables
R2 (adjusted)
Constant
Majority 2nd
Chamber
(Dummy)
Election
(Dummy)
Left
(Dummy)
Right
(Dummy)
DW
Observations
Polit-economic approaches and tax reforms in Germany 1965-2003
Partisan/Opportunistic
Net
fiscal
effects/
GDP
0.007
(1.15)
-0.005
(-1.51)
0.009
(-1.37)
-0.006
(-0.993)
-0.002
2.37
39
Fiscal
effects of
reductions/
GDP
-0.003
(-0.55)
0.001
(0.53)
-0.004
(-0.671)
-0.003
(0.006)
-0.04
2.33
39
Fiscal
effects of
increases/
GDP
0.01 ***
(2.71)
-0.006***
(-3.29)
0.005
(-1.26)
-0.003
(-0.78)
0.17
2.27
39
Net
fiscal
effects/
GDP
0.008
(1.16)
-0.005
(-1.52)
0.0009
(0.30)
-0.01
(-1.38)
-0.006
(-1.02)
-0.03
2.42
39
Fiscal
effects of
reductions/
GDP
-0.002
(-0.32)
-0.0002
(0.072)
0.005
(1.78)
-0.007
(-1.11)
-0.005
(-0.95)
0.02
2.52
39
Fiscal
effects of
increases/
GDP
0.25
0.01***
(2.54)
-0.0054*
(-2.79)
-0.004**
(-2.16)
-0.003
(-0.76)
-0.001
(-0.36)
2.05
39
Net
fiscal
effects/
GDP
-0.00
(-0.37)
-0.002
(-0.85)
-0.03
2.17
39
--0.0001
(-0.054)
Fiscal
effects of
reductions/
GDP
-0.008***
(-5.04)
0.002
(0.79)
0.04
2.38
39
0.004*
(1.57)
Fiscal
effects of
increases/
GDP
0.007***
(7.45)
-0.004***
(-2.71)
0.27
1.90
39
-0.004***
(-2.70)
Net
fiscal
effects/
GDP
39
-0.00
(-0.43)
-0.002
(-0.88)
-0.00
2.17
Fiscal
effects of
reductions/
GDP
39
-0.007***
(-5.04)
0.002
(1.03)
0.001
2.28
Fiscal
effects of
increases/
GDP
39
0.006***
(6.60)
-0.005***
(-2.96)
0.17
2.10
PartisanOpportunisticDivided Government
Explanatory
Variables:
Own calculations based on: Federal Ministry of Finance (2004)/Federal Statistical Office(2007).
Table 10: Testing positive hypotheses of tax reforms in Germany 1965-2003
Taken together our combined analysis supports our previous findings (see part V.3.3
to V.3.7) of an important effect of opportunistic behavior and divided government
on the pattern of tax reforms especially via tax burden increases.
153
3.9 Summary
The most important advantage of our data-set of fiscal effects of tax reforms from
1964 to 2004 is the unique opportunity to test important polit-economic hypotheses
on tax policy and tax reform directly and quantitatively.
Our empirical analyses showed that inertia did not play a role in tax policy in
Germany. Although the revenue structure was very stable, tax reforms were very
frequent and cumulated absolute fiscal effects of tax reforms over GDP between
1965 and 2003 accounted for twice the average annual tax over GDP ratio.
For the second polit-economic approach – fiscal illusion by the timing of tax burden increases and reductions – we were not able to find any support either.
Instead, we observed that federal governments behaved opportunistically: they
tried to increase their re-election probabilities by scheduling tax burden increases
directly after, and tax burden reductions in the year before the elections. Thereby
governments focused on the timing of implemented reforms and not of adopted
reforms. As predicted by the theory of opportunistic government behavior, wage and
income taxes were most important for electoral manipulation while the timing of
reforms in most indirect and less visible taxes (especially VAT and the tobacco tax)
showed no sign of opportunistic behavior.
While opportunistic motivation came out very clearly in our analyses, we were
not able to find any empirical support for our hypotheses on differences in tax policy
depending on the partisan orientation of governments.
Most surprising were our findings with respect to the importance of divided government. Instead of legislative gridlock, which plays a prominent role especially in
the case-study based literature on tax reform in Germany, we found by far more and
higher fiscal effects of tax reforms under divided than under undivided government.
In our data there was no indication that a majority of the opposition effectively
blocked tax reforms, nor that tax reforms were larger and more frequent in case of
undivided government. Furthermore, there was no evidence that divided federal
governments were concentrating on reforms of taxes which did not need approval of
the second chamber. Finally, there was only very limited evidence for a stronger role
of partisan preferences in case of undivided government. Instead, we found that
especially tax burden increases were substantially lower in case of undivided governments. This shows that especially undivided governments restrained from tax
burden increases as they feared to be blamed exclusively for tax burden increases in
the next elections.
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Zusammenfassung
Was bestimmt die Steuerpolitik? Welche Ziele verfolgen die Bundesregierungen bei Steuerreformen? Haben Steuererhöhungen und Steuersenkungen einen Einfluss auf die Wahlergebnisse? Auf der Basis eines neuen Datensatzes zu den fiskalischen Effekten von Steuerreformen im Zeitraum von 1964 bis 2004 zeigt das Werk Muster der Steuerpolitik auf und testet zentrale ökonomische Hypothesen. Dabei zeigt sich, dass normative ökonomische Ansätze kaum einen Erklärungsbeitrag für die zu beobachtende Steuerpolitik leisten können.
Ausgehend von wichtigen polit-ökonomischen Theorien zeigt der Autor, dass die Mehrheitskonstellationen im Bundesrat einen wichtigen Einfluss auf die Steuerpolitik haben, allerdings genau umgekehrt wie von der Blockade-Hypothese behauptet: Steuerreformen sind gemessen an ihren Fiskaleffekten bei gegenläufigen Mehrheiten in Bundestag und Bundesrat häufiger und umfangreicher. Des Weiteren gibt es keine Hinweise darauf, dass die parteipolitische Zusammensetzung der Bundesregierung einen wichtigen Einfluss auf Steuerreformen hat. Wahltaktische Terminierungen von Steuerreformen spielen aber sehr wohl eine wichtige Rolle. Eine Auswertung des Zusammenhangs von Steuerreformen und Wahlergebnissen zeigt allerdings, dass die Versuche der Bundesregierungen, ihre Wiederwahlwahrscheinlichkeit durch Steuersenkungen kurz vor der Wahl zu erhöhen, wenig erfolgreich sind: Nicht nur die Jahre unmittelbar vor den Wahlterminen, sondern die Steuerpolitik in der gesamten Legislaturperiode hat einen Einfluss auf die Bundestagswahlergebnisse der regierenden Parteien.